What's Happening With The Dow Industrials?
The below chart shows the Elliott Wave labeling for the Dow Industrials since January 14th, 2000. The choppy decline from then through October 10th, 2002 is an extremely rare Triple Three wave pattern. The Triple Three pattern essentially formed a Bullish Flag, which suggested a sharp spike higher, which we've gotten since 2005.
The rally from 2002 has been strong. Very strong. With several sub-waves nearly vertical. Using slope analysis, flatter sloped rallies imply an end to a Bull run. Sharper upward sloping rallies imply a beginning. When we couple this analysis with the fundamental economic new paradigm where the Master Planners are now willing to hyperinflate our economy, and other central banks around the world are willing to do the same, which is in effect world government market intervention on a scale never seen before, we have to draw the conclusion that the current rally from 2002 - which is coming to a conclusion, is merely the first of five intermediate degree waves within a final primary degree wave (5) up. Thus we believe we are now seeing the conclusion to intermediate degree wave 1 of (5) here in 2007, not the conclusion of intermediate degree wave 5 of (5).
We believe that wave 1 of (5) should end this summer, or by early fall 2007, to be followed by a relatively painful correction, intermediate degree wave 2 down within a five wave structure for (5) up. Intermediate 2 down could be brief, lasting only a few months, as the decline in 1987 saw, or it could last 6 to 9 months, finishing in 2008. In either case, it will be painful. However, it is corrective, and should be followed by a huge mega-Bull market starting in 2008/2009, intermediate degree wave 3 up. We presented this scenario with an alternate notation the past several weeks. We now have placed it as our top count. It means many of the longer term EW labelings are one degree lower.
The above pattern in the Dow Industrials is an Ascending Expanding Wedge, with diverging upper and lower boundaries, which suggests a top here of significance. Once complete, prices can be expected to drop to about the start of the pattern, at a minimum, meaning into the 9,000s over the intermediate-term, although if the PPT responds by hyperinflating the money supply, it could be 9,000 in real dollars (gold adjusted), not nominal. Tuesday February 27th's decline was the largest one-day sell-off since 9/11, and the seventh worst in the history of the stock market. However, it looks to have been merely a three-wave corrective decline, wave b down, with c up underway (c is possibly complete). It is looking increasing likely to us that world central banks will choose hyperinflation rather than nominal decline in stock indices, which will force precious metals prices to rise sharply. The recent confirmed Hindenburg Omen suggests that the coming Intermediate degree wave 2 decline could be sharp, and should occur within 120 days, possibly starting within five weeks.
Fundamentally, the economy is a wreck about to happen, due to housing, lending, and debt crises, and a new coming credit crunch crisis. The 500 point crash on February 27th was an early warning. The recent rash of large down days is another . We got a bunch of them similarly in 1987 before the big plunge. The PPT is very active at this time. They will do everything they can to prevent a major stock sell-off. Their key tool is to print a ton of money and get it into the economy by buying bond and equity markets. If they do this, any major decline should be reversed, with new nominal highs to follow, our new top labeling - the hyperinflation scenario, considers the developing top merely intermediate degree wave 1 up, not 5 up.
Short-term, prices are traveling in a nice upward parallel trend-channel for wave c. Wave {3} topped on June 1st, at 13,692. A Micro degree wave {4} correction may have completed on June 7th, at 13,251,with a final wave {5} up underway, however our top labeling is that the DJIA is forming a Micro wave {4} down Ascending/Symmetrical Bullish Triangle. Wave {5} up should rise at least an amount equal to the first "{a}" wave of the triangle, about 410 points above the breakout point, which should take the DJIA toward 14,000. There are other short-term scenarios shown on the next page, one Bullish, the other Bearish. A breakout above 13,692 would be Bullish. A drop under 13,251 increases the odds of the Bearish scenario, that the major top is in on a truncated (prices fell short of the wave {3} top) {5}th.
"And if you have not been faithful in the use of that which
is another's, who will give you that which is your own?
No servant can serve two masters; for either he will hate the one,
and love the other, or else he will hold to one, and despise the other,
You cannot serve God and mammon."
Luke 16:12, 13
June 24, 2007
Robert D. McHugh, Jr. Ph.D.
Main Line Investors, Inc.
Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at www.technicalindicatorindex.com. The statements, opinions and analyses presented in this newsletter are provided as a general information and education service only. Opinions, estimates and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided.
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